President's Jobs Plan Includes Carried Interest Tax Hike

Sep 9 2011 | 1:39pm ET

President Barack Obama sought once again to revive the oft-offered, oft-killed proposal to close the so-called carried interest loophole during his major jobs speech before both houses of Congress last night.

Under the American Jobs Act, a $447 billion plan that seeks to improve the employment and economic environment, hedge fund and private equity managers would have to pay the ordinary income tax rate on their performance fees, rather than the capital gains rate they currently pay. That could increase taxes on alternative investments players by billions—the top ordinary tax rate is more than twice the capital gains rate.

Of course, Obama's bill is not likely to pass either quickly—as he urged yesterday—or in its current form. Republicans have on several occasions over the past several years blocked any effort to close the carried-interest loophole, going to the mat to block it during the negotiations to raise the U.S. debt limit earlier this year.

"While most people in this country struggle to make ends meet, a few of the most affluent citizens and most profitable corporations enjoy tax breaks and loopholes that nobody else gets," the president said. "While corporate profits have come roaring back, smaller companies haven't. So for everyone who speaks so passionately about making life easier for job creators, this plan is for you."

Obama's bill would extend and expand cuts in payroll taxes, especially for smaller businesses. The president pledged that everything within the plan would be paid for—in part by closing the carried-interest loophole.

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